Value − Balance
The core home equity formula
80%
LTV threshold below which PMI usually isn't required
78%
LTV where lenders must auto-cancel PMI
20%
Equity most lenders want retained after a HELOC
The home equity formula
Home equity = Current home value − Remaining mortgage balance. If your home is worth $400,000 and you owe $280,000 on your mortgage, your equity is $120,000, or 30% of the home's value. This number changes every time either side of the equation moves — your loan balance shrinks with every payment, and your home's market value shifts with local conditions, renovations, and broader market trends.
Two very different sources of equity
- Paydown equity: the portion of your payments that reduces principal, converting mortgage debt directly into ownership — this is guaranteed and grows steadily regardless of market conditions
- Appreciation equity: the increase in your home's market value above what you originally paid for it — this is not guaranteed and can decrease in a market downturn, unlike paydown equity
- Separating these two matters because paydown equity is a reliable, compounding asset, while appreciation equity is a market-dependent gain that can be partially or fully reversed
What LTV ratio means and why lenders care
Loan-to-value (LTV) ratio is your remaining loan balance divided by your home's current value — effectively the inverse of your equity percentage. Lenders use LTV to assess risk: a lower LTV means more of the home is genuinely yours, giving the lender more cushion if you default and the home needs to be sold. An LTV above 80% on a conventional loan typically requires private mortgage insurance (PMI); once your LTV reaches 80% through paydown or appreciation, you can request PMI cancellation, and lenders are required to automatically cancel it once you reach 78% based on your original amortization schedule.
ℹ️ Borrowing against your equity
Home equity loans and HELOCs (home equity lines of credit) let you borrow against equity you've built, often at lower rates than unsecured personal loans, because the loan is secured by your home. Most lenders require you to retain at least 20% equity after the new loan is originated, so a $400,000 home with $280,000 owed (30% equity) could typically support a HELOC of up to roughly $40,000-$60,000 depending on the lender's specific limits.
How home equity fits into net worth
Home equity counts as an asset in any net worth calculation, and for most homeowners it's the largest single line item. The important caveat is liquidity: unlike a brokerage account, you can't spend home equity directly — accessing it requires selling the home, refinancing, or taking out a home equity loan or HELOC, each of which comes with its own costs and considerations. A high net worth driven mostly by home equity looks different, practically, from the same net worth held in liquid investments.
Use the Home Equity Calculator on this site to see your current equity, LTV ratio, and the breakdown between appreciation gains and paydown gains for your specific home value, purchase price, and remaining balance. Pair it with the Mortgage Calculator to see your full payment breakdown, or the Rent vs Buy Calculator if you're still deciding whether to buy in the first place.